Covance finds early phase work rebound in Q2 as central labs growth continues

By Zachary Brennan+Zachary Brennan31-Jul-20142014-07-31T00:00:00ZLast updated on 31-Jul-2014 at 16:28 GMT2014-07-31T16:28:03Z

The season of quarterly reports is in full swing, with CRO Covance seeing its income and revenue rise in Q2 compared with the same quarter last year due to stronger-than expected early phase development and central labs work.

For Princeton, NJ-based Covance, net revenue rose 8% from Q2 in 2013, with early development revenue of $231.2m, which grew 7.7% year-on-year, and was led by growth in clinical pharmacology and toxicology.

Covance CEO Joe Herring said in Wednesday’s conference call: “In early development, the rebound from the seemingly soft first quarter was more pronounced than we expected…despite the headwind from the sale of the Seattle genomics lab.”

In toxicology, Herring said the market continues to stabilize and Covance delivered 10% year-on-year revenue growth in Q2, which was the company’s second-highest toxicology order performance since before the financial crisis of 2008.

“We have successfully moved about $10 million of US toxicology study starts to our European sites,” Herring said. “This compares to zero studies moved to Europe last year.”

As far as other early phase development, he noted the company continues to see increased activity for both biotech and large pharma sectors with increased demand for high complexity Phase I and IIa studies. Last month, Covance CFO Alison Cornell said the company’s early stage work was almost completely back on track from pre-recession levels.

Analysts also seemed positive on the growth of early stage work. Citi Research’s Garen Sarafian said in a note to investors: “Early development continued to improve reaching” ahead of his projections, “with better than expected margins upon capacity reductions announced previously.”

Central Labs

Central labs, in which Covance has always been a crowd pleaser, has also seen continued growth over the last six to nine months, Herring said, noting, “We are again seeing some larger sponsors becoming less price-sensitive and looking to reengage with Covance.”

He added: “There's some really ugly stories coming out the market over the last six months where clients have had major studies put in jeopardy because of another central lab provider. So as much as we hate that for the client, it tends to send them our way.”

The company is also making a more concerted push to add risk-based monitoring studies to its arsenal of work.

Herring noted in the conference call that Covance is taking an “innovative approach” to risk-based monitoring. “And we haven't rolled it out broadly, [but] we are rolling it out to strategic clients and having them involved in the beta testing and the early work. Most of the algorithms and the logic behind our approach to risk-based monitoring, we can do manually and have been doing manually, and now it's a matter of putting in an automated system, and we've made substantial progress on that.”

Most recently, Covance also began collaborating with the Novartis Institutes for Biomedical Research to accelerate the development of a data warehouse designed to support data integration and meta-analysis across both preclinical and clinical research.

But overall, it seems as business on the clinical side is continuing to ramp up. Herring noted: “I think it would be safe to say the clinical market is growing faster than we would have guessed. And I think you'll see that in the results of some of our competitors who've not had some unexpected cancellations.”